PayPal Assault On File-Sharing Sites Makes Business Case For Bitcoin

BitTorrent and Bitcoin were made for each other. An article on TorrentFreak reports that PayPal is requiring private BitTorrent tracking sites to provide them free access for purposes of monitoring user content for possible copyright infringement.

On the very same day, another TorrentFreakarticle claimed that researchers at Boston's Northeastern University show domain seizure of file-sharing sites to be ineffective and that blocking the money streams to these sites would be a more 'fruitful' solution. And, it is already happening in a major way. The money stream targeting even extends to ISPs that happen to be BitTorrent friendly.

Just as with the payment-oriented attacks against the online pharmacy industry, censorship-resistant bitcoin appears to solve the problem by providing a decidedly nonpolitical currency. Used properly, bitcoin can have the privacy attributes of paper cash and bitcoin doesn’t make morality judgements about what you choose to do with your money. It is purely a value transfer protocol and it functions generally in accordance with the same distributed peer-to-peer principles as BitTorrent.

Of course, many commenters to the articles have already made the connection to a bitcoin solution but with varying degrees of endorsement. Private BitTorrent trackers traditionally rely on donations for the operation of their service and PayPal is so widely used that donations would drop if forced to rely on lesser-known payment methods.

Indeed PayPal is a private corporation and using their payment service is voluntary. But the problem is that, through fear of liability or outright pressure from authorities, PayPal enforces a blanket global policy across legal jurisdictions as a substitute for due process. File-sharing sites comprise both file-hosting and BitTorrent tracking sites each of which may have different legal status in different jurisdictions depending on interpretation and enforcement of various copyright laws.

PayPal is actually setting the stage for its payment successor. "Bitcoin as a viable currency keeps growing in appeal with every incident like this. These companies are undermining their own viability," said a veteran redditor.

According to TorrentFreak, PayPal has started freezing the accounts of private BitTorrent trackers until they provide PayPal unfettered access to the site in question. File-hosting services MediaFire, DepositFiles, and Putlocker have had their PayPal accounts disabled too. Additionally, file-hoster PutLocker had their PayPal funds frozen for six months because they objected to the backend monitoring of their customer's files.

This action wouldn't seem so difficult if PayPal were barely used, but for those unable to prepare for alternatives it can have a significant impact on revenue. "This has a paralyzing effect on the file-hosting industry where 90% of the users of some sites pay using PayPal," declared an owner of a major file-hosting service.

Established private tracker TorrentBytes announced that they may have to shut down unless they can find a way to process payments:

Problem is not lack of donations, but entirely on handling them. As of current every service provider the site has to pay for only accepts PayPal, Credit/Debit cards or direct bank wiring. Only one provider allows bitcoin. Unless we can figure out some realistic and possible way to do site finances completely PayPal free, it seems like the story of TorrentBytes will end very soon after January 2013.

Bitcoin can be accepted fine without any third-party involvement. Spending them remains the bigger hurdle. While services like BitPay and Coinbase exist that will accept bitcoin payments on your behalf and convert out to national currencies, operators like TorrentBytes may not have a bank account or a credit card to use for their own procurement. If businesses don't want to exchange bitcoin for cash physically or load bitcoin onto a surrogate offshore debit card for purchases, bank accounts are still required with most online bitcoin exchanges. Life can be tough in the early days of a stateless currency.

If PayPal free is the goal, several VPS providers already accept bitcoin for payment of hosting services. In turn, file-hosting sites and private torrent sites that have successfully adopted the bitcoin payment method from their users include Lumfile, filecloud.io, and TorrentLeech.

Maybe the researchers have a point about targeting the money stream. It has been speculated that blocking the money stream to governments would solve the regulation of the economy and unbridled spending problems too.